Stocks are back in recovery mode. The two-day pole vault we've just enjoyed makes that abundantly clear. But how much further can the rebound carry? And how should you play what's left of it?

My answer to the first question may surprise you: This rally will last longer, and push stock prices higher, than you think. Today, we finally got a hint from Washington that key players may be coming together for a "global" solution to the subprime mortgage crisis.

The package won't please everyone, of course -- certainly not free marketeers who would like to see the bad loans liquidated promptly, with no political meddling. But even a limited, Band-Aid remedy will calm the nerves of investors who fear an implosion of the financial system. As confidence returns, stock prices will rise.

Remember what happened after Franklin D. Roosevelt took office as president in 1933. Many of his policy initiatives were flawed from the standpoint of classical economic theory. However, he restored that elusive ingredient, confidence, which the markets lacked under Hoover. And stocks soared.

I'm not predicting a runaway rally like that of 1932-33; or even a replay of 1999, when the world breathed a huge sigh of relief in the aftermath of the Asia/Russia crisis. The housing problems will linger well into 2008.

Still, the blue chip U.S. stock indexes should be able to break out to new all-time highs this month or next. On the way up, as the market begins to show its hand, we'll make an assessment of where and when the next important top might occur.

For the very near term (the next one to three days), prices look quite overextended. Expect some churning, and perhaps a meaningful down session -- 100 points or more on the Dow -- tomorrow or Monday.

But you'll want to use any such weakness as a buying opportunity. One name in the bargain bin even now is Target (NYSE: TGT). Today, the stock got hammered when TGT announced mediocre November sales and warned of a less than stellar December.

At a mere 14X next year's projected earnings, though, TGT has lots of room for appreciation if the holiday shopping season turns out just a tiny bit better than Wall Street pessimists fear. A year ago at this time, TGT sold for around 17X forward earnings. So you've got upside potential of about 20% if the stock merely returns to a more normal valuation.

Jolly old Saint Nick hasn't arrived yet on Wall Street, but he's due any day now. At the risk of going out on a limb, it looks to me as if the massive tax-related selling that has depressed stock prices for the past few trading sessions is about to dry up. Odds are that the market will improve in the second half of the month.

On the face of it, today's trading wasn't too pretty. More stocks declined than advanced, by a wide margin, on all three major exchanges. In addition, as they've done for months, the poor, battered financials bore the brunt of the selling.

As the session wore on, however, the bears failed to knock the S&P down through support around 1470. A nice little rally ensued in the last three hours of trading. Perhaps now investors will take a second, more sympathetic look at the Fed's actions earlier this week -- and give the market its traditional December boost.

Historically, December is the best month of the year for stocks. Since 1945, the S&P 500 index has risen in 48 Decembers and fallen in just 14, for a 77% success rate.

Moreover, the December record is even more impressive after a down November. (Need I remind you: Last month, the S&P sank 4.4%.) Since 1945, the S&P has fallen 21 times in November. After those drops, the market went on to record an uptick in 19 Decembers -- a remarkable 90% of the time. Only during the recession years of 1969 and 1974 did stocks fail to bounce in December after a November slide.

If I'm right about a strong second half to the month, which stocks should perform best? Probably those that have been beaten down the most in recent days. Top of my list, for a trade anyway, would be Sallie Mae (NYSE: SLM), the nation's largest originator of student loans.

Yesterday, SLM announced that its troubled buyout deal with a consortium of private-equity funds fell through. I'm disappointed, of course, because I felt that the consortium's last offer ($50 per share plus warrants) would have given us a respectable return on our money.

But the drop in the stock over the past few weeks, and especially in the past three days, looks like an extreme overreaction. Even with SLM's lower earnings guidance for 2008 (also announced yesterday), the company is surely worth more than 10 times a depressed year's profits. In 2002, amid a ferocious bear market, SLM averaged 19X earnings.

This is the kind of stock that could rally 20% in a heartbeat once the disillusioned holders clear out.

A little unorthodox, but -- we'll take it! The stock market has been working on a quiet base the past two days, shaking off one bombshell after another from the financial sector. I would have been happier with a sharp bounce, but maybe this "stealth" rally can pick up steam in the last six trading days of the year.

Market bottoms are never easy on the nerves. Most leave behind a case of whiplash, the August and November lows this year being classic examples. The bearish crowd works itself into a frenzy; then some news item comes along (like a Federal Reserve rate cut) to shock the market's psychology into reverse.

As I say, that's the typical progression. But not all bottoms include a violent reversal. Particularly when the market has been trying to carve out a bottom for several months (as it has been doing this time), the final low is sometimes rather quiet -- though just as agonizing, because of all the time that has elapsed. If you're a chart hound, go back to October 2004 and see what I mean.

To me, the most remarkable feature of the current market is that stocks with good earnings can still rally smartly, despite the continuing sick-unto-death behavior of the financials.